Franza: The Long and the Short of It

Saturday

Nov 3, 2018 at 3:01 PMNov 3, 2018 at 3:01 PM

If you are a regular reader of this bi-monthly Sunday column, you probably know I strongly advocate for long-term success over short-term gains.

In June, for instance, I wrote a column supporting Warren Buffett and Jamie Dimon’s op-ed in the Wall Street Journal that favored this notion. About a year ago, I stressed the importance of strategic planning, which by definition focuses on long-term. My message has always been that overemphasizing short-term results usually undermines the likelihood of long-term success.

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While I'm still a believer in long-term vs. short-term, I would like to share some important lessons I have learned about how to balance the two, and why it is important to communicate this balance to your organization’s key stakeholders.

Periods in recent American business history have demonstrated the perils of overemphasizing short-term goals and profits. The late 1970s, early 1980s and the first decade of the 21st century provide clear examples “short-termism” dominating the business landscape and causing less-than-optimal company performance. Firms make a correction, typically, by reverting to a more long-term perspective.

But why did they fall into the short-term trap in the first place? And why is it so easy to fall into the same trap again?

Usually, individuals and firms are driven by the allure of short-term profits that make them look good, and by the demands of investors and corporate boards for robust near-term performance.

I believe our society is becoming increasingly short-term focused, and that it has a lot to do with the impact of technology and the increased speed, accessibility and availability of information. We simply expect things to occur more quickly and get rapid feedback. Such heightened expectations make short-termism more attractive to businesses because they are now expected to turn performance around quickly.

As I usually do, I am going to couch this issue in terms of sports and business.

In sports, let’s look at the quarterback situation at the University of Georgia and how Coach Kirby Smart is dealing with both short- and long-term issues related to his program. After UGA’s fantastic 2017 season, expectations were high for another great year despite the loss of some great players to the NFL. The Bulldogs lived up to those expectations until a devastating loss to Louisiana State University. Following that loss, UGA's fan base was calling for freshman quarterback, Justin Fields, to replace the incumbent Jake Fromm. Smart had to consider both the short-term (winning now and satisfying his fan base) and the long-term (program stability) in making his decision.

While his fan base might not have been happy, Smart chose Fromm and stability – and also achieved an important win against the University of Florida at the same time. My best guess is that Smart's decision was supported by those who really mattered because he communicated to them well. More on this in a bit.

In business, let’s look at the short tenure of former General Electric Chief Executive Officer John Flannery. GE already was in a steep downward trajectory when Flannery took over for the previous CEO, Jeffrey Immelt, in June 2017. Flannery came in with a definitive long-term plan to turn around the once-proud conglomerate. However, within approximately fourteen months, Flannery was out, and an argument can be made that he was dismissed for lack of short-term progress, though his long-term plan was potentially sound.

This appears to be a case in which more balance between short-term and long-term may have been required.

We can learn some lessons from the situations at UGA and GE. While Smart has not addressed the situation publicly, we can assume he considered the short- and long-term implications of who he played at quarterback. While some constituencies (definitely his fan base and possibly his donors) were clamoring for change, Smart evaluated what was best for his program. I would also guess Smart addressed this issue with his boss, Athletic Director Greg McGarity, and that McGarity supported the decision. It also didn't hurt Georgia beat Florida, also providing a positive short-term result.

However, at GE, Mr. Flannery, despite his emphasis on the firm's long-term health, could not garner support from his most important constituencies (his board and his investors) and he had no short-term success to demonstrate the strength of his plan.

The overall lessons we can learn from these situations are:

• While long-term is more important than the short-term, short-term “wins” are important to keep your constituencies satisfied. You have to survive the short-term to make it to the long-term. As a company, you sometimes have to be short-term-driven to ensure you are around long-term.

• Communication is critical. Be sure to communicate to all of your key constituencies your long- and short-term plans so they understand where you are headed and why you may have to sacrifice one for the other.

• Understand who your most important constituencies are, and be sure they are on board with your emphasis. It appears McGarity was on board with Smart; and that GE's board was not with Flannery.

The writer is dean of the Hull College of Business at Augusta University.

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